Guest Column

It’s 4:20 — Do you know where your lease is?

October 28, 2016
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New legislation signed by Gov. Rick Snyder last month may launch the medical marijuana industry in Michigan and create potential new headaches — or opportunities — for landlords and tenants alike.

The Medical Marijuana Provisioning Act, slated to take effect in late December, establishes a clear path for the commercialization of marijuana by:

  • Establishing, licensing and regulating “provisioning centers,” which will sell medical marijuana.
  • Creating a 3 percent tax on gross sales for all provisioning centers, which is expected to add as much as $64 million to state coffers.
  • Establishing a “seed-to-sale” tracking database.
  • Allowing medical marijuana to be sold in pill, topical oil or edible forms, not just smokable forms.

The new regulations put some much-needed teeth into the voter-enacted Medical Marijuana Act, which approved the use of medical marijuana — but gave no guidance as to when, where or how. For the past eight years, law enforcement, municipalities and users have been struggling with the vagueness of the 2008 law.

Wyoming is a great case in point. The city passed strict zoning rules in 2010 that essentially made it impossible for provisioning centers — also known as dispensaries — to operate within city limits. The law was immediately challenged and, while upheld by the Kent County Circuit Court, was overturned by the Michigan Supreme Court in 2014.

The new legislation gives greater guidance on what is — and is not — permissible. Now, it’s time now for landlords and tenants to get up to speed on the new regulations.

Lease, license and zoning

There’s little doubt the new regulations will allow for the swift commercialization of medical marijuana in our state, and the commercial market will react. If we take a look at Colorado, which was one of the first states to legalize marijuana for recreational use, we see a gold rush mentality when it came to putting up storefronts and branding product.

Anecdotally, we have heard some Colorado warehouse space leases for $25 per square foot, an eye-popping sum that might make some West Michigan landlords salivate. But before rushing in to buy grow lights, landlords and tenants will need to undertake greater due diligence, including a thorough review of current leases.

Questions for consideration include:

  • What does your current lease say? Often landlords have a use provision that states the property or facility may be used for “office, warehouse or any other lawful use.” Given that our legislature has approved medical marijuana provisioning centers as lawful, they would be considered a lawful use — and one that a landlord might not want. Additionally, the landlord needs to consider if that is a use its co-tenants will appreciate.
  • Do you have a license? Just because provisioning centers are lawful doesn’t immediately mean landlords have to accept them, or that they can offer the space as a dispensary. Tenants must still get a license from the state, in the same way that liquor stores do, before they can set up shop. Proper application must be submitted to the state, and the application for licensure requires written approval of the applicant and the facility by the municipality in which the facility is to be located.
  • What’s the zoning? As with any new lease, landlords and tenants both need to understand the zoning and municipal regulations where the storefront or warehouse is located. Cities, townships or villages may enact an ordinance regarding the types of facilities permitted, limiting the number of such facilities, and annual licensing fees. So, will there be restrictions on location, such as no provisioning centers within a certain number of feet of a school or church? Will buffer zones be required? If you expect to have a dog in the fight, now is the time to voice your thoughts with your municipalities. Zoning regulations will continue to evolve over the coming months. Whether these are safeguards or hurdles are dependent on your perspective — and your business model.

Moral stances aside, we expect this new legislation will create a new and legal industry in Michigan. The commercial real estate market will react accordingly, as will municipalities. Landlords and tenants both need to prepare before it’s officially 4:20.

Robert Nolan is a partner at the law firm Warner Norcross & Judd LLP, where he counsels clients on complex commercial real estate development transactions. He can be reached at rnolan@wnj.com.

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